The Sad Demise of an old Foe

We were saddened to hear the news this week that Veritas-IT (www.veritas-it.co.uk) have gone into administration.

Whilst they were a technology recruitment firm based not too far from us, we haven't ever really considered them to be a competitor, although in many senses they weren't too dissimilar to us in terms of the types of companies they were looking to work with. It came as something of a shock to us that they had gone under.

This might, to the casual observer, sound like pretty uninteresting news. However, the ramifications of any recruitment business going under are far-reaching: particularly so when, like Veritas, a lot of your business is Contract business.

As a bit of background to non-industry readers, Contract IT recruitment is big business, and it works a little like this. Technology companies often have need to hire someone to work on a particular project for a relatively short time. This normally happens when they win a new project themselves, but don't have the internal skill resource to do the work. The solution is to hire a contractor, pay them a daily (or hourly) rate for a fixed period, and then - when the project is complete - not have trouble getting that person off the payroll. Agencies supply these contractors, and pay them for the work completed on the back of timesheets submitted. The agency will then invoice the company in question, by adding their charge onto the money owed to the contractor.

So, when a company like Veritas - who had hundreds of contractors working for them on various client sites, do go out of business, the major problem is that, generally, contractors are owed money. According to some who have been commenting on Contractor UK's bulletin board, some in this particular instance are owed as much as £10,000. What we've seen in other recruitment companies going bust is that most of those with money outstanding will be lucky to ever see even half of what they're owed - a truly sad situation. The problem for many is that, ultimately, they'll be treated as unsecured creditors, who are well down the liquidators' list when it comes to paying the debt they are owed (behind the liquidators' own fees, the staff and the secured creditors - i.e the banks). We have heard some horror stories down the years, and we cross our fingers that we don't hear any more in the fall-out of this.

According to this, Veritas were a £14million turnover business at the start of the year. They moved into new (bigger) offices, and went on a recruitment drive internally. This was, it appears, in spite of losing over £750K in 2006 (see here), and making an acquisition (also see here). Whilst outwardly they seemed a successful company, inwardly they were losing money, working to unmanageable margins and, unfortunately, it's the contractors who are set to lose out the most.

Veritas aren't the first and won't be the last recruitment company to go out of business, but it does beg a question - as a contractor, what steps can you take to stop this from happening to you?

There is a real need to check out the financial stability of the agency who are going to be responsible for paying you. Companies House is a good start, and cheap financial information can be easily and quickly obtained from UK Data Ltd (www.ukdata.com) or from Dunn & Bradstreet (www.dnb.com). You don't need to be an accounting expert to understand these reports, and it's well worth the investment before you sign anything. If a bank were to lend a company money, they'd be doing their homework - it's imperative that you protect yourself the best you can.

Of course, to all those candidates looking for a permanent job, none of this is relevant - an agency going bust won't affect your chances of getting a new job.